Status of the Overtime Rule - What Now?

Within the past two weeks, the federal district court in Texas granted summary judgment in favor of the business groups and 21 states that had challenged the Department of Labor’s rule doubling the salary level threshold for certain exemptions from overtime pay, the Department of Labor dropped its appeal of the injunction imposed by the Texas court last November, and the Fifth Circuit Court of Appeals entered a dismissal of the Department of Labor’s appeal. Where does this leave employers? Employers do not need to take any particular action now, but should be aware that the Department of Labor (DOL) may act to increase the salary level threshold for exemptions, although such an increase is likely to be less than the increase proposed by the Obama-era DOL.

The Fair Labor Standards Act (FLSA) requires that employees receive overtime pay if they work more than 40 hours a week and they do not come within any exemption under the FLSA. The “white collar” exemptions require that the employee be paid on a salary basis at least $23,660 a year and satisfy the requirements of a duties test for a particular exemption. The Obama-era DOL proposed a new rule that would have increased the required minimum salary for exemption to $47,476. It was that rule that was challenged in the federal court. The new rule would have gone into effect December 1, 2016. In November 2016, the Texas federal district court issued an injunction order that prevented the new rule from taking effect. The Obama DOL appealed that order to the Fifth Circuit Court of Appeals. While that appeal was still pending, on August 31, 2017, the district court granted summary judgment in favor of the parties who had challenged the rule, stating that the DOL had exceeded its authority because the new rule “makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.” Because the grant of summary judgment rendered the DOL’s earlier appeal moot, the DOL asked the court of appeals to dismiss its appeal, and the court of appeals entered the dismissal order last week.

The Trump administration DOL has indicated that it may issue a new overtime rule. In July, 2017, the DOL issued a Request for Information asking for public comment on 11 particular questions, including questions relating to what salary level would be appropriate for the exemption threshold and whether there should be changes to the duties tests. The comment period for that Request for Information ends September 25, 2017. It is anticipated that the DOL will continue with its rulemaking process and increase the current salary level, but that the increase may be to only approximately $32,000 a year instead of the $47,476 proposed by the previous administration.

Many employers implemented changes prior to December 2016 to make their pay practices compliant with the new rule. Some employers raised the salaries of exempt employees to meet the new $47,476 threshold and some employers reclassified employees from exempt to non-exempt status. Those employers who instituted such changes could reinstate their prior salary levels and classifications, but doing so could create both legal compliance and employee-relation challenges. At a minimum, all employers should continue to make sure that all employees classified as exempt receive at least the current required salary level and meet the requirements of the relevant duties test under federal and state laws.